Bits & Pieces

Federal Insurance Co. v. P.K. Carriers v. Lloyds



P.K. CARRIER CORP., and U.S. Khalsa Corp., Defendants.

P.K. CARRIER CORP., Third-Party Plaintiff,


CERTAIN UNDERWRITERS AT LLOYD’S LONDON and Fairmont Insurance Brokers, Ltd., Third-Party Defendants.



Feb. 13, 2007.





The final claim remaining in the above-captioned case is between third-party plaintiff P.K. Carrier Corporation (“P.K.Carrier”) and third-party defendant Certain Underwriters at Lloyd’s, London (“Underwriters”). P.K. Carrier alleges in its amended third-party complaint that Underwriters refused to honor an insurance policy covering physical damage to P.K. Carrier’s vehicle. Underwriters move for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure and additionally seek sanctions under Rule 11(b).





The following facts, drawn from the parties’ Rule 56.1 Statements, are not in dispute. P.K. Carrier is a trucking company located in New York. Underwriters issued an insurance policy, number SW2065L, to P.K. Carrier covering the period from April 30, 2001 through April 30, 2002. (Opp.Decl.Ex. A.) The policy insured a 1998 Freightliner truck owned by P.K. Carrier against physical damage with a limit on liability of $45,000. (Id.) On or about May 12, 2001, P.K. Carrier received a letter from the Federal Motor Carrier Safety Administration (FMCSA) stating that their application for interstate operating authority had “been reviewed and accepted,” but explicitly stating that the “letter does not constitute authority to operate.” (Def. Rule 56.1 Statement Ex. 5.) On May 14, 2001, P.K. Carrier picked up a shipment of fragrances to be delivered from New Jersey to New Mexico. Two days later, the insured truck overturned in Arkansas, causing extensive damage. On March 27, 2003, Underwriters issued a letter denying coverage for the damage based on an exclusion in the policy that provided: “This insurance does not cover … loss of or damage to any automobile … while the automobile is used in connection with any illicit trade or transportation.” (Id. Exs. 3, 4.)





Summary judgment is appropriate when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). In a motion for summary judgment, the Court must view the facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The moving party must demonstrate that no genuine issue of fact exists for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986). If successful, the nonmoving party “may defeat summary judgment only by producing specific facts showing that there is a genuine issue of material fact for trial.” Samuels v. Mockry, 77 F.3d 34, 36 (2d Cir.1996).





Underwriters argue that under the unambiguous terms of the policy, the accident that occurred on May 16, 2001 is excluded from coverage. The Court agrees. The letter from the FMSCA that P.K. Carrier indisputably received stated that it “does not constitute authority to operate” and set out four different requirements with which P.K. Carrier must comply before a certificate, license, or permit would issue allowing interstate operations to begin. (Def. Rule 56.1 Statement Ex. 5.) The letter concludes by cautioning P.K. Carrier that failure to comply with the four requirements within 20 days may result in the dismissal of the application. (Id.) P.K. Carrier’s interstate operation of the truck without proper authority was a violation of federal law. See 49 U.S.C. § §  14906, 14910 (2006).


The insurance policy covering physical damage contained the following exclusion: “This insurance does not cover … loss of or damage to any automobile … while the automobile is used in connection with any illicit trade or transportation.” (Def. Rule 56 .1 Statement Ex. 3.) P.K. Carrier argues that this exclusion does not apply because its cargo was not contraband and the truck was duly registered, inspected, and insured. Under New York law, exclusions are accorded a strict and narrow construction, and an insurer may exclude coverage only if the exclusion is subject to no other reasonable interpretation. See Seaboard Sur. Co. v. Gillette Co., 476 N.E.2d 272, 275 (N.Y.1984). Nonetheless, clear and specific exclusions will be given effect. Underwriters argue that the exclusion based on “illicit … transportation” is unambiguous and clearly applies. Illicit is defined as “illegal or improper;” transportation is defined as “the movement of goods or persons from one place to another by a carrier.” Black’s Law Dictionary 750, 1505 (7th ed.1999). Even under a strict and narrow interpretation, the operation of a vehicle without proper authorization constitutes illicit transportation. See Globe Discount & Finance Corp. v. New Jersey Insurance Co., 199 N.E. 923 (Mass.1936) (damage while operating unregistered vehicle on public road was not covered by policy excluding damage while automobile was “used in any illicit or prohibited trade or transportation.”). It is inconsequential that the truck was not involved in “illicit trade” as the policy also has an exclusion for “illicit … transportation.” The damage to the truck was caused while the truck was used in connection with illicit transportation. Therefore, Underwriters properly denied coverage for damage to P.K. Carrier’s vehicle. Underwriters are entitled to summary judgment dismissing the last remaining claim against it.


Underwriters further move for sanctions against P.K. Carrier pursuant to Rule 11(b), arguing that the meaning of the exclusion was clear, as recognized by the Court at a prior hearing, and that P .K. Carrier’s counsel was advised that Underwriters would seek sanctions, but still failed to withdraw its third-party claim. The Court, in its discretion, does not find Rule 11(b) sanctions to be warranted in this case. First, under Rule 11(c)(1)(A), a motion for sanctions is to be made separately from other motions, while this motion was made as part of Underwriters’ motion for summary judgment. Second, the Court’s recitation of facts during oral argument held in September 2005 did not clearly state that the operation of a vehicle without proper authorization constitutes illicit transportation as used in the exclusion; instead, it merely recited the reason given in the letter disclaiming coverage for the damage to P.K. Carrier’s vehicle. Finally, while the Court finds little merit in P.K. Carrier’s arguments, they are not clearly frivolous or unwarranted by existing law, which directs the Court to narrowly construe exclusions and heavily favors the insured. Therefore, Underwriters motion for Rule 11(b) sanctions is denied.





For the foregoing reasons, Underwriters’ motion for summary judgment [68] is granted and motion for Rule 11(b) sanctions is denied. P.K. Carrier’s amended third-party complaint [64] is dismissed in its entirety. The Clerk of the Court is directed to close the case.





Transport Management v. Petty

TRANSPORT MANAGEMENT EUROPE N.V. as Agents for Lloyd’s Syndicate BMR 1861 Plaintiff,


Robert PETTY Individually and Trading as Savannah Trucking and Savannah Transport, Inc. and Wrag-Time Air dba Wrag-Time Transportation, Emrick & Feldman Inc., Buckwirth Trucking LLC, LAFD Inc., Wrag-Time Northeast Express Ltd., Wrag-Time California Express Inc., LRB Trucking Inc., Leonard Emrick, Vision Express Inc., Go Trucking LLC. Defendant,

andWrag-Time Air Freight, Inc. dba Wrag-Time Transportation, Emrick & Feldman Inc., Buckwirth Trucking, LLC, LAFD Inc., Wrag-Time Northeast Express Ltd, Wrag-Time California Express Inc., LRB Trucking Inc., Leonard Emrick, Vision Express Inc. Inc., Go Trucking LLC. Third-Party Plaintiffs,


The Rubin Group, Third-Party Defendant.


Feb. 13, 2007.




RODRIGUEZ, Senior District Judge:

This matter comes before the Court on Third-Party Defendant’s, The Rubin Group (hereinafter “Rubin Group”), Motion to Dismiss Third-Party Complaint of Third-Party Plaintiffs, Wrag-Time Air Freight, Inc. dba Wrag-Time Transportation, Emrick & Feldman Inc., Buckwirth Trucking, LLC, LAFD Inc., Wrag-Time Northeast Express LTD, Wrag-Time California Express Inc., LRB Trucking Inc., Leonard Emrick, Vision Express Inc. Inc., Go Trucking LLC (hereinafter “Wrag-Time” or “Third-Party Plaintiff”), pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons discussed herein, the Court will grant Third-Party Defendant The Rubin Group’s Motion to Dismiss.



I. Factual Background


To understand the context of the claims against the Rubin Group, it is necessary to briefly review the underlying allegations between all parties. On or about June 1, 2004, the underlying Plaintiff, Transport Management Europe N.V. as agents for Lloyd’s Syndicate BMR 1861 (hereinafter “TME”) issued a policy of insurance to Third-Party Plaintiff Wrag-Time. (See Complaint at ¶  4.) Third-Party Plaintiff, acting as a road transport operator, subcontracted with Savannah Trucking (hereinafter “Savannah”) to transport a consolidated container from Los Angeles, California to Miami, Florida. (Id. at ¶  5.)


On or about October 21, 2004, while en route between Los Angeles and Miami, the trailer caught fire and the contents of the trailer were destroyed. (Id. at ¶  6.) Third-Party Plaintiff filed a claim under the policy of insurance issued by TME. (Id. at ¶  7 .) The policy wording required Third-Party Plaintiff to pay any and all claims made by the shippers first, and then seek recovery from TME, less the applicable deductible of $25,000. (Id.) In this case, however, because Third-Party Plaintiff was experiencing financial difficulties, TME paid all claims and deferred application of the deductible until the matter was concluded. (Id.)


As alleged in the underlying complaint, the policy provided that Third-Party Plaintiff would not subcontract any of the services, other than upon the condition that the subcontracts are “back to back with liabilities accepted by the insured …” (Id. at ¶  8 .) However, the complaint alleges that Savannah only had a liability coverage limit of $50,000, in contravention of the warranties and conditions of the policy. (Id.) Savannah allegedly paid Third-Party Plaintiff $47,500 ($50,000 less a $2,500 deductible) that Savannah received from its carrier, but Third-Party Plaintiff never informed TME that it received any money from Savannah. (Id. at ¶ ¶  12, 13.) Additionally, Third-Party Plaintiff allegedly released Savannah from any obligation relating to the fire, thus impairing TME’s subrogation rights. (Id. at ¶  14.)


The underlying complaint alleges fraud and concealment in the handling of the claims resulting from the fire. (Id. at ¶ ¶  13, 14.) Specifically, the complaint alleges that Third-Party Plaintiff concealed the level of insurance obtained by Savannah, “knowing full well that it had fraudulently concealed the true facts surrounding the limited liability of Savannah Trucking and thereby voided any and all responsibility for payment by [TME].” (Id. at ¶  8.) The complaint continues by alleging that Third-Party Plaintiff received payment from Savannah’s carrier for the loss, but “deliberately and fraudulently concealed the true facts surrounding the payment it received from Savannah Trucking in the sum of $47,500.00 which would have required Wrag-Time to reimburse Plaintiff, TME to the extent of said $47,500.00 but instead by action of conversion wrongfully converted said funds to its own use.” (Id. at ¶  13.)


Finally, the underlying complaint alleges that the fraudulent acts and concealment of Third-Party Plaintiff voided the contract of insurance, entitling TME to a rescission of the policy. (Id. at ¶  15.) The complaint states:

16. The fraudulent acts and concealment of its actions by Defendant, Wrag-Time, constitute not only gross negligence on the part of Wrag-Time, but said fraudulent acts and concealment were wanton and willful.


(Id. at ¶  16.)


Therefore, TME seeks a judgment against Third-Party Plaintiff and Savannah, jointly and severally in the sum of $151,841.75.



II. Procedural History


TME filed a complaint on August 29, 2006 against Third-Party Plaintiff and Savannah, as well as various individual entities. Third-Party Plaintiff answered the complaint, and included a counterclaim, a cross-claim, and a third-party complaint against the Rubin Group, the insurance broker for Third-Party Plaintiff.



III. Discussion


A. Standard of Review



A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted must be denied “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). A district court must accept any and all reasonable inferences derived from those facts.  Glenside West Corp. v. Exxon Co., U.S.A., Div. of Exxon Corp., 761 F.Supp. 1100, 1107 (D.N.J.1991). Further, the court must view all allegations in the Complaint in the light most favorable to the plaintiff. See Scheuer, 416 U.S. at 236; Jordan v. Fox, Rothschild, O’Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994).


It is not necessary for the movant to plead evidence, and it is not necessary to plead the facts that serve as the basis for the claim. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir.1977). The question before the court is not whether movants will ultimately prevail; rather, it is whether they can prove any set of facts in support of their claims that would entitle them to relief. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). Therefore, in deciding a motion to dismiss, a court should look to the face of the pleadings and decide whether, taking all of the allegations of fact as true and construing them in a light most favorable to the non-movant, the allegations state a legal claim. Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir.1990). Only the allegations in the complaint, matters of public record, orders, and exhibits attached to the complaint, are taken into consideration.  Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir.1990).



B. The Parties’ Arguments


In the first count of the Third-Party Complaint, Third-Party Plaintiff Wrag-Time argues that Third-Party Defendant The Rubin Group “breached and failed to exercise the requisite duty(ies) owed to Wrag-Time by knowingly inducing Wrag-Time to enter into and accept an insurance policy which [TME] now asserts is not a cargo insurance policy, but an indemnity based legal liability insurance policy, despite Wrag-Time’s expressed cargo insurance needs and desires to the contrary.” (See Third-Party Complaint at ¶  7.) As a result, Third-Party Plaintiff argues that the Rubin Group is responsible and liable for Third-Party Plaintiff’s potential damages from TME’s cause of action. (Id. at ¶  8.) In its second count, Third-Party Plaintiff asserts that its own conduct was derivative and secondary to the Rubin Group’s actions.


Conversely, the Rubin Group argues that Third-Party Plaintiff does not allege any connection between the improper policy and the claims of TME. “There is no allegation in the third-party complaint alleging that, if the proper policy had been provided, it somehow would have excused Wrag-Time’s fraudulent acts and conversion.” (See Third-Party Defendant’s Brief at 4.) Regarding the second count, the Rubin Group argues that the initial suit against Third-Party Plaintiff is limited to its fraud and conversion in handling the claim resulting from the fire, and emphasizes the fact that coverage was not denied because the wrong policy may have been issued.


In its opposing brief, Third-Party Plaintiff claims that the Third-Party Complaint: (1) clearly alleges that the actions or omissions of the Rubin Group make it liable to Third-Party Plaintiff for TME’s potential damages against Third-Party Plaintiff, (2) sufficiently states claims upon which relief can be granted, and (3) sets forth claims related to TME’s original causes of action.


Lastly, in its reply, the Rubin Group simply reiterates its argument that the underlying complaint and the third-party complaint are unrelated.



C. Motion to Dismiss Third-Party Complaint


The Third-Party Complaint against the Rubin Group is limited to an allegation that the policy issued was the incorrect type, being a liability policy and not a cargo policy. Because this allegation is unrelated to the claims against Third-Party Plaintiff, the Rubin Group’s motion to dismiss will be granted.


Rule 14(a) of the Federal Rules of Civil Procedure provides that a defendant may bring a third-party action against a party “who is or may be liable to the third-party plaintiff for all or part of the plaintiff’s claim against the third-party plaintiff.” Fed.R.Civ.P. 14(a). Specifically, “[a] third-party claim may be asserted under Rule 14(a) only when the third-party’s liability is in some way dependent on the outcome of the main claim or when the third-party is secondarily liable to defendant. If the claim is separate or independent from the main action, joinder will be denied .” Federal Deposit Insurance Corporation v. Bathgate, II, 27 F.3d 850 (3d Cir.1994), citing C.A. Wright, A. Miller, M.K. Kane, Federal Practice and Procedure, Vol. 6 Section 1446, at 355-58 (1990). “If the third-party claim is not derivative of the third-party plaintiff’s liability as to the underlying plaintiff, the third-party complaint should be dismissed.” Id.


Here, Third-Party Plaintiff’s claims against the Rubin Group are not derivative of Third-Party Plaintiff’s potential liability to TME. TME is seeking rescission of the policy and reimbursement for funds paid regarding the fire loss due to fraud, concealment and conversion. Specifically, TME alleges that Third-Party Plaintiff received settlement funds from the insurer for Savannah, the entity that was transporting the consolidated container when the fire occurred, in the amount of $47,500. This money was allegedly received by Third-Party Plaintiff but not remitted to TME. Moreover, Third-Party Plaintiff never paid the deductible contained in the policy. Finally, the policy issued by TME required that any subcontractors must be insured to the same amount of the primary policy, which Third-Party Plaintiff failed to do. For these reasons, TME is seeking to rescind the contract and recover all monies paid, in the amount of $151,841.75.


The Third-Party Plaintiff, in its first count, alleges that the Rubin Group breached and failed to exercise its requisite duty by knowingly inducing Third-Party Plaintiff to accept an improper policy of insurance. However, even if true, this fact has no bearing on the underlying complaint. There is no claim that the incident was not covered by the policy, and in fact TME paid the full amount of the loss, including the deductible. TME does not seek a refund of the money paid based upon an improper policy of insurance, but because of the alleged fraud and conversion committed by Third-Party Plaintiff. The Rubin Group is not liable for the fraud, conversion, and wanton and willful conduct alleged against Third-Party Plaintiff.


Third-Party Plaintiff’s second count alleges that its conduct was derivative and secondary to the Rubin Group’s actions. However, as noted, the claims against Third-Party Plaintiff are limited to its fraud and conversion in the claims handling resulting from the fire. Moreover, the Rubin Group is not alleged to have been a party to these acts. Thus, the Third-Party Complaint is unrelated to the underlying claims and therefore should be dismissed.


Third-Party Plaintiff, in opposing the motion to dismiss, merely argues that “[t]he relationship between [TME’s] complaint allegations asserting an indemnity policy and the Third-Party Complaint’s claims are evident, relevant, and material despite the Rubin Group’s argument to the contrary,” but does not elaborate further. Third-Party Plaintiff argues a myriad of case law, but does not show how the underlying complaint and the Third-Party Complaint are related. Even if the Rubin Group’s actions “fell below and deviated from acceptable professional industry standards and practices” (see Brief in Opposition to Motion to Dismiss Third-Party Complaint at 4), there is no relationship between the claims asserted by TME and those by Third-Party Plaintiff.


To sum up, the claims in the underlying complaint only deal with the claims handling process and the alleged fraud and conversion perpetuated by the Third-Party Plaintiff. This cannot be attributable to the Rubin Group, as the Third-Party Complaint makes no mention of the Rubin Group’s conduct in the claims handling procedure.


Therefore, the Third-Party Complaint against the Third-Party Defendant The Rubin Group is dismissed, with prejudice, because the Third-Party Complaint involves separate and distinct claims from the underlying complaint, and there is no basis for which the Third-Party Defendant can be held liable for the alleged actions of Third-Party Plaintiff.



IV. Conclusion


THEREFORE, for the reasons set forth above,


IT IS this 13th day of February, 2007, hereby


ORDERED that Third-Party Defendant The Rubin Group’s Motion to Dismiss is GRANTED.

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